We do not yet know how the courts will rule on whether Wellington City Council can force its contractors to pay their employees a minimum of $18.55 an hour. But I think we can come to a verdict on the policy's economic merits, and I do not think council would much like it.

Let us begin by stepping back to first principles. Voters seem concerned about the living standards of low-wage workers with children. Labour's working for families package was designed to boost wages for those workers and, at the same time, to encourage lower skilled workers to shift from benefit into work.

In 2013, Treasury assessed the case for the living wage. They noted then that three-quarters of families earning below the then-proposed $18.40 living wage had no children, that over 60 per cent were single adults with no dependents, and just under 30 per cent were low earners in families with total family income greater than $60,000.

Living wage proposals are not well targeted if the aim is helping those in most need. Because working for families removes support as wages increase, those contractors supporting families will get to take home a much smaller fraction of their proposed wage hike than will their single and childless co-workers.

Central government is then better placed to design income support mechanisms that integrate with existing programmes. And, it can spread the costs of providing that support across all taxpayers on a more equitable basis than can councils.

Finally, while it can sometimes be the case that paying higher wages can encourage a more loyal workforce with less turnover, council contractors work in competitive markets. If these kinds of effects hold, those companies would already have worked them into their salary structures.

But if Wellington City Council is determined to do it regardless, we can work through some of the logical effects.

Contractors bidding against council-owned agencies for provision of services that could be outsourced will lose some of their ability to compete on price. Council-provided services will become more expensive not only due to the direct effect of the higher wage bill but also because of the reduction in competition and outsourcing. I expect more services will then be provided by in-house unionised council staff.

If security guards working for a contractor earn more when rostered onto a council job than when sent off onto a private job, those workers will all prefer the council jobs. If I were a company contracting workers to council under that kind of arrangement, I'd slot workers into the more lucrative positions as reward for having provided a couple years' exemplary service in the hard-to-roster hours on other contracts. The net benefit to workers then winds up being a bit less clear.

Finally, we should worry a little here about precedent. Whenever council decides to pay more for some good or service than it really needs to, that comes at a cost: higher rates, fewer services, or more debt. Council's fiduciary duty to ratepayers should not lightly be abandoned.